House prices fall 'fastest for 12 years'

House prices tumbled at the fastest rate for more than a decade in November, as confidence in the property market disappeared.

Fall: Nationwide has reported its fastest monthly house price fall for 13 years

Figures from the latest Nationwide Building Society house price index, released today, showed a 0.8% fall in house prices during the month – the biggest monthly drop since June 1995.

The fall of almost £1,500 took the cost of an average home to £184,099 and reduced the annual rate of inflation to 6.9% from the 9.7% recorded in October.

Despite the fall, the average home in the UK still costs almost £12,000 more than a year ago.

Fears of a housing slump have been further fuelled by the Council of Mortgage Lenders warning that the current tight credit conditions for banks and building societies could lead to borrowers facing a much-reduced selection of homeloans.

In a speech to the City, Jackie Bennett, head of policy at the CML, said: 'There is not enough retail funding around about to fund mortgage markets if the capital markets do not open next year.'

Bank of England statistics, meanwhile, showed a sharp drop in the number of mortgages granted last month and the Bank's governor, Mervun King added to the gloom by warning that the economic outlook was 'highly uncomfortable'.

In all 88,000 mortgages were granted last month, down from 102,000 in September and 128,000 a year ago. It is the first time mortgage approvals have been below 100,000 since July 2005.
The Land Registry revealed yesterday that property values in London slipped 0.6% last month.

Mr King said the unease about the US economy was beginning to be felt in the UK property market. He told MPs on the Treasury select committee that getting a mortgage could become more difficult: 'I'm sure lenders will feel more constrained in their ability to fund mortgage lending.'

His colleague Professor David Blanchflower warned that Britain could 'catch a cold' from the US where he said there was now a 50-50 chance of a recession. 'These are very hard times, it's very uncertain and people don't know what's coming,' he told MPs .

Brigid O'Leary, an economist at forecasters Capital Economics, said: 'Today's data from the Bank of England reinforce the overcast outlook for the housing market. Added to the mix of evaporating buyer confidence, tighter credit conditions and falling house price indices, these are increasingly convincing signs that we are in the early stages of a housing market correction.'

The gloomy figures will add pressure on the Bank to cut base rates from 5.75% before Christmas. Spread betting firm Cantor Index says chances of a December cut are 60-40 in favour of hold and most analysts still believe the first cut will be in February or March because of concerns that inflation is not yet under control.

The fall in prices in Nationwide's index is in stark contrast to October when it reported a 1.1% rise in prices while others, such as Halifax's report, had shown the average cost of a home falling.

The building society bases its report on its mortgage data and said monthly movements can be volatile with November affected by robust figures in October and the previous November.

The three-monthly inflation rate also showed the property market softening, falling back to 1.5% form 1.8%.

Nationwide chief economist Fionuala Earley said higher borrowing costs and stretched affordability had led to the lack of confidence in the market.

'November's data confirms that the housing market is indeed cooling in line with the weakening in housing market drivers,' she said. 'Poor affordability, weaker house price growth expectations and the effect of earlier increases in interest rates have all affected demand in the market.

'House purchase approvals - a good barometer of real market demand - have weakened from a peak of 128,000 a month in the final months of 2006 to 102,000 in September. We expect this activity to continue to fall back throughout the rest of this year, and into the next.'

Data released by property information group Hometrack, earlier this week, showed prices falling by 0.2% in November. Meanwhile, the Land Registry reported the cost of a home rose by just 0.1% in October, with London seeing prices fall by 0.6%.

Howard Archer, chief economist at analysts Global Insight, said: 'While the 0.8% drop in house prices in November is eye-catching, it needs to be borne in mind that it followed an unexpected 1.1% spike in house prices in October. Taking October and November together, house prices only edged up which probably gives a truer reflection of the current state of the housing market.'